Book Value per Share
Book value per share (BVPS) is a measure of value of a company's common share based on book value of the shareholders' equity of the company. It is the amount that shareholders would receive if the company dissolves, realizes cash equal to the book value of its assets and pays liabilities at their book value.
Book value per share is used in relative valuation of companies as part of price to book value ratio in which value of Company A common share is determined using its book value per share and price to book value ratio of another Company B or the industry. Since book value per share is derived from an accounting value and accounting values are subject to management discretion in accounting policies, it should be used with care and should be corroborated with other ratios.
A variant of book value per share is called tangible book value per share. It excludes value of intangible assets from book value of shareholders' equity used in the normal book value per share calculation.
Formula
Book value per share is determined by dividing common shareholders' equity by total number of outstanding shares.
| Book Value per Share = | Shareholders' Equity − Preferred Shares |
| Total Number of Outstanding Shares |
Total Outstanding Shares = Total Number of Shares Issued − Shares as Treasury Stock
Example
Calculate book value per share for Wells Fargo & CO. (NYSE: WFC) using data given following extracts from its balance sheet as at 31 December 2012.
| USD in million | |
|---|---|
| Preferred stock | 12,883 |
| Common stock: authorized 9,000 million; issued 5,481 million | 9,136 |
| Additional paid-in capital | 59,802 |
| Retained earnings | 77,679 |
| Cumulative other comprehensive income | 5,650 |
| Treasury stock: 215 million shares | (6,610) |
| Unearned ESOP shares | (986) |
| Total Wells Fargo stockholders' equity | 157,554 |
Solution
Common shareholders' equity = $157,554 million − $12,883 million = $144,671 million
Total outstanding shares = 5,481 million − 215 million = 5,266 million
Book value per share = $144,671 million ÷ 5,266 million = $27.47
Market price of WFC share price as at 31 December 2012 was $34.18.
by Obaidullah Jan, ACA, CFA and last modified on